Kammer Asphalt Paving Co., Inc. v. East China Tp. Schools

Decision Date03 August 1993
Docket NumberDocket No. 93937,M,No. 3,3
Citation504 N.W.2d 635,443 Mich. 176
Parties, 85 Ed. Law Rep. 257 KAMMER ASPHALT PAVING CO., INC., King Fence & Supply Co., Inc., Seaway Plumbing & Heating, Inc., Metro Landscaping and Sprinkling Systems, Inc., B.J. Feldman Assoc., and Southern Bleacher Corporation, Plaintiffs-Appellants, v. EAST CHINA TOWNSHIP SCHOOLS, Defendant-Appellee. Calendaray Term.
CourtMichigan Supreme Court

RILEY, Justice.

Because we find that M.C.L. § 129.201 et seq.; M.S.A. § 5.2321(1) et seq. imposes upon a governmental unit 1 the duty to verify the validity of a payment bond furnished by a general contractor of a public works project, we reverse the Court of Appeals affirmance of summary disposition with regard to plaintiff's negligence count. Similarly, because we find that defendant may have inequitably received the benefit of plaintiff's labor and materials, we reverse the Court of Appeals affirmance of summary disposition with regard to plaintiff's unjust enrichment and constructive trust counts. Finally, we affirm the Court of Appeals affirmance of summary disposition with regard to the third-party beneficiary count because plaintiff is not a third party within the meaning of M.C.L. § 600.1405; M.S.A. § 27A.1405.


Because plaintiff's complaint was dismissed on summary disposition, we view the facts in the light most favorable to plaintiff. Stevens v. McLouth Steel, 433 Mich. 365, 370, 446 N.W.2d 95 (1989).

On April 23, 1987, defendant, East China Township Schools, entered into a general construction contract with a general contractor, Dougherty Construction, Inc., for the construction and renovation of athletic facilities in the district. 2 As required by the public works act, 3 Dougherty furnished defendant a performance bond 4 and a payment bond. 5 The bonds were standard, preprinted, American Institute of Architects forms, with the name of the surety, American Seaboard Indemnity & Insurance Company of Peachtree City, Georgia, printed across the top of each bond.

Dougherty entered into a contract with plaintiff, subcontractor Kammer Asphalt Paving Co, for certain base and paving work. In consideration of plaintiff's services, Dougherty agreed to pay Kammer $217,906. In October of 1987, plaintiff notified Dougherty, as well as the school district, of its intended performance and its reliance upon the payment bond.

In accordance with the general contract, the project's architect, DiGeronimo Associates, disbursed progress payments to Dougherty as the project advanced. Dougherty, however, was not as consistent in paying the project's subcontractors. When various subcontractors, including plaintiff, repeatedly expressed concern over Dougherty's failure to compensate them, defendant, DiGeronimo, and Dougherty all indicated that they need not worry because the payment bond protected the subcontractors' interest.

On August 15, 1988, defendant discovered that the furnished bonds were invalid and unenforceable--American Seaboard Indemnity & Insurance Company did not exist. Dougherty ignored defendant's subsequent demands for valid bonds. On October 21, 1988, defendant issued a notice of termination to Dougherty because of its failure to furnish the required bonds, at which time plaintiff first became aware of the fraudulent nature of the bonds.

Defendant then filed suit in St. Clair Circuit Court against Dougherty Contractors and William Dougherty. In a separate action, plaintiff filed suit against Dougherty, DiGeronimo, defendant, and various members of the East China School Board. Four other subcontractors separately filed similar actions. In response to defendant's motion, the trial court consolidated the subcontractors' five separate suits with defendant's action against Dougherty.

Following consolidation of the lawsuits, defendant filed a countercomplaint and third-party complaint for interpleader, naming all of Dougherty's subcontractors as parties. Defendant sought to deposit the remaining contract funds 6 with the trial court for a determination regarding its proper distribution. Defendant proposed that the fund first be applied to pay for completion of the project, with any remaining funds to be distributed to the unpaid subcontractors on a pro-rata basis. 7

On March 16, 1989, defendant filed a motion for summary disposition pursuant to MCR 2.116(C)(8) and (10) with regard to the subcontractors' claims against the school district. The circuit court granted defendant's motion, finding no legal duty for governmental units to ensure the validity of the bonds, which foreclosed the subcontractors' negligence claim. 8 Furthermore, the court found that the subcontractors' unjust enrichment, constructive trust, and breach of contract to a third-party beneficiary claims were unsupportable. The Court of Appeals affirmed in an unpublished per curiam opinion. This Court granted plaintiff's application for leave to appeal on December 8, 1992. 9 441 Mich. 894, 495 N.W.2d 389.


Because materialmen and contractors may not obtain a mechanics' lien on a public building, 10 the Legislature requires the posting of performance and payment bonds by a general contractor before construction on a public building may commence. M.C.L. § 129.201 et seq.; M.S.A. § 5.2321(1) et seq. 11 Payment bonds are "solely for the protection of claimants ... supplying labor or materials to the principal contractor or his subcontractors in the prosecution of the work provided for in the contract." M.C.L. § 129.203; M.S.A. § 5.2321(3). 12 The bond, therefore, must be "executed by a surety company authorized to do business in the state." M.C.L. § 129.204; M.S.A. § 5.2321(4). The Legislature further protects subcontractors by mandating that public units provide subcontractors a certified copy of a submitted bond if they submit an affidavit that they are unpaid for services or materials. M.C.L. § 129.208; M.S.A. § 5.2321(8). Furthermore, such a certified copy "shall be prima facie evidence of the contents, execution, and delivery of the original." Id. 13

The Court of Appeals, relying on prior authority, 14 held that "[t]here is no duty imposed on the contracting governmental unit to insure that payment bonds are kept current or to warn subcontractors or material suppliers of the expiration of a bond." 15 The Court, therefore, granted defendant's motion for summary disposition with regard to the negligence count. 16

The dissent, however, fails to examine the current statute as a whole. "In every exposition of a statute, the intention of the Legislature is undoubtedly the end to be sought...." Leoni Twp. v. Taylor, 20 Mich. 148, 154-155 (1870). Thus, when legislative intent is clearly revealed in an unambiguous statute, the plain language of the statute must be enforced. Farms Products Co. v. Jordan, 229 Mich. 235, 239, 201 N.W. 198 (1924). Nevertheless, because "a clause which, standing by itself, might seem of doubtful import, may yet be made plain by comparison with other clauses or portions of the same law," a fundamental principle of statutory interpretation is that "the whole is to be examined with a view to arriving at the true intention of each part...." 1 Cooley, Constitutional Limitations (8th ed), p. 127. 17 If judicial construction is necessary, the Court must discern the Legislature's intent by examining "the object of the statute, the harm which it is designed to remedy, and apply a reasonable construction which best accomplishes the statute's purpose." In re Forfeiture of $5,264, 432 Mich. 242, 248, 439 N.W.2d 246 (1989).

Utilizing these principles, an examination of M.C.L. § 129.208; M.S.A. § 5.2321(8) reveals that it unambiguously provides that a government entity verifies the validity of a payment bond when it provides a certified copy of the bond at the request of a subcontractor. 18 In the instant case, therefore, the statute imposes the risk of the invalidity of such bonds upon the government entity. 19 This interpretation of the statute is aligned with its avowed purpose to protect subcontractors in the absence of mechanics' liens for public works. Furthermore, the statute's requirements that the bond be submitted to the government entity, 20 the bond be executed by a validly licensed company, 21 and filed in the office of the government entity, 22 all strongly confirm that the statute imposes upon the government entity the duty to verify the validity of such bonds. 23 To hold otherwise would be to render the statutory requirement of payment bonds meaningless.

In the instant case, plaintiff requested and was provided copies of the bonds nearly a year before the termination of the project, at which time defendant certified that the bonds were properly executed. Plaintiff, therefore, is entitled to proceed on the negligence count because defendant's provision of the certified copies was prima facie evidence that the bonds were valid, and defendant is liable for the resulting damages stemming from its failure to verify the bonds' validity. 24


Even though no contract may exist between two parties, under the equitable doctrine of unjust enrichment, "[a] person who has been unjustly enriched at the expense of another is required to make restitution to the other." Restatement, Restitution, § 1, p. 12. The remedy is one by which "the law sometimes indulges in the fiction of a quasi or constructive contract, with an implied obligation to pay for benefits received" to ensure that "exact justice" is obtained. Detroit v. Highland Park, 326 Mich. 78, 100, 39 N.W.2d 325 (1949), quoting Cascaden v. Magryta, 247 Mich. 267, 270, 225 N.W. 511 (1929). Because this doctrine vitiates normal contract principles, the courts ...

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